Arik Hesseldahl

Recent Posts by Arik Hesseldahl

HP CEO Léo Apotheker Says He Won’t Ship TouchPad Till It’s Perfect

Hewlett-Packard CEO Léo Apotheker hasn’t even been on the job one year, and his tenure at the helm of one of the world’s biggest technology companies has already been an eventful one. The board of directors has been shaken up, several executives have left recently, and Apotheker has set the company in a new strategic direction focusing on cloud services. But there are also signs of trouble. Leaked internal memos suggest that layoffs are coming to HP soon. Amid slowing personal computer sales, the world’s biggest maker of PCs–which last year acquired Palm for its webOS operating system–is under pressure to demonstrate that it has a credible tablet strategy and that Apple’s iOS, Google’s Android, and Research In Motion’s BlackBerry devices haven’t entirely knocked it out of contention from the smartphone business.

Walt: You’ve been running the world’s largest technology company how long now?

Léo: Seven months. Let me just start by saying HP is not just the world’s largest PC company, but also the world’s largest technology company.

11:34 am: Walt: So HP is a very large company. There is a sense that large companies are not nimble enough to compete with other companies, whether they are start-ups or larger companies that can move quickly. How do you look at that? Your competitors that are making phones and tablets and other things that compete with some of your products are mostly smaller than you. How do you deal with that?

Léo: I don’t believe that technology in particular is for the enterprise space. You are there to try and deliver a business outcome for the customer. A solution or business outcome is not driven by a single product, it’s driven by a combination of products and services that you bring together to try and deliver that outcome. In that case being large is an advantage.

Léo: HP is trying to position itself at the convergence of all these technologies. Cloud, security, real-time analytics. The fact that we have the broad capability, that we’re trying to drive these to our customers, gives us an advantage.

Walt: What percent of your business is big corporations?

Léo: Let’s call it commercial and consumer. 26 percent of our business is consumer, and the rest is non-consumer.

Walt: Is that a good ratio?

Léo: It’s a good ratio.

Walt: And you’re a pretty big consumer brand as well.

Léo: There’s this trend happening on the enterprise side, which is the consumerization of the IT. In fact, that’s another advantage that we have. The fact that we’re both consumer and enterprise allows us to bring some of that innovation on the consumer side to the enterprise.

Walt: I hear a lot from corporate IT folks from two ends of the client base inside their companies who want to adopt what have been thought of as consumer technologies. Senior executives want iPads. The other, more troubling piece is new hires–“Here, take this old Blackberry or old company-issue laptop.” They say, “No, I like my phone, my laptop.” They want to use that.

Léo: Or your webOS phone.

Walt: They’re not as prevalent yet. Some companies are saying take this bit of money and buy from an approved list. We may hate that you’re buying a Macbook, but you can buy one. If three-quarters of your company is serving enterprise customers, how do you cope with that trend?

Léo: You don’t want to cope with, you want to get ahead of it.

Léo: The trend you describe is happening every day. But now you have to secure it all. Corporations or individuals want everything to be secure. You want to make sure that all the data you have is accessible.

11:42 am: Léo: We’d like to create an environment where you can use data in an open and secure and context-aware environment.

Léo: We’d like to help enterprises move all the applications into the real world.

Walt: Let’s talk about webOS for a minute. You’ve been primarily a hardware company. You went out and bought an operating system. I like it. But it was in the hands of a company that had no money, and couldn’t market it properly and couldn’t attract developers. You have money and resources and can attract developers. The bad news is that you’re a giant bureaucracy. I’m curious, what are your plans for webOS? It’s obviously on phones. It’s going to be on tablets. You’re now in possession of an Apple-like end-to-end situation where you can have the software platform and not pay another company further north (Microsoft). And you’re building cloud systems. That’s really end to end. Is that what you’re going for?

11:45 am: Léo: Yes we are. We also want to do the same thing for the enterprise. Your description of webOS is accurate. We bought an outstanding operating system. It’s the only one that is designed from the ground up to be totally Web- connected. The one thing I regret is that HP didn’t take Palm and webOs to market sooner. I have tried to shelter webOS from the bureaucracy.

Léo: Even though I don’t believe HP is so bureaucratic as you say.

Walt: We’ll have lunch and discuss it.

Léo: We’ll get the bureaucracy to organize that.

Léo: You’re going to have webOS on the tablet and the phone. We’ll create a platform as a service so that developers can have all the tools they need to create cool applications. We want to create as holistic an ecoystem as we can. We’ll put webOS on PCs. It will go on every PC that we’ll ship.

Walt: Will it replace Windows?

Léo: In the beginning, it will sit on top of Windows. It will also be on every printer we ship above $100. With the Web services we deliver, the printer becomes a very cool connected device.

Walt: I know you’re still focused on your enterprise customers. It sounds like you’re diverging. People used to say HP and Dell together a lot. You now sound a lot more like Apple. What’s going on? This is a very different HP.

Léo: It should be. We’ll do a bunch of things for consumers and we’ll do a lot of things for enterprises. Our ambition is to create a world where you don’t need to flip devices when you do personal things or work-related things on your devices. All of these things come together.

11:51 am: Léo: Update your contacts once in Outlook and it updates them everywhere else automatically.

Walt: How does this sound in Redmond?

Léo: HP and Microsoft are strong partners. The PC business is changing dramatically. There are two worlds in the PC business. There’s the consumer world–the non-consumer world is growing great [but] the consumer world right now is in a valley. It will come out. There is a secular trend that affects us way beyond tablets. It’s things you can do with ARM (chips) on the PCs. There’s some great innovation you can do on ARM.

Léo: Suddenly with ARM there’s a whole new capability to innovate, and I think over the next three to four years, the whole personal-device computing world will merge together and we’ll see a whole new set of form factors come out.

Walt: Right now if I’m sitting with an iPad I can do a lot of things. It doesn’t boot up like a PC. I have a sense that people designing laptops are thinking about tablets and changing how they’re designed.

Léo: I saw someone using an iPad with a keyboard. Why would you want to carry that when you could carry a laptop? My take on this, you will see that different users will require different form factors. If HP can create a form factor where you can bring things up instantly, then, yes, you’ll see some convergence happening. For more heavy computing tasks, you’re going to need a PC. Will it have an Intel chip or an ARM chip? That will have to be driven out of the chip side of the business.

Walt: Now you’re not only making Microsoft nervous, you’re making Intel nervous.

Léo: Just stating the fact.

Walt: Who are your competitors?

Léo: Here he named a handful of companies that compete with HP in the PC business including Apple and a few others. I didn’t catch the full sequence of what he said, but it ended with “Epson on printers.”

Walt: You didn’t mention Dell.

Leo: Yes Dell is still out there in the marketplace.

Walt: Which one do you worry about?

Léo: All of them. One should never been arrogant enough not to worry about them.

Walt: That’s not an answer. Which one?

Léo: It depends on the day. You have to take everyone seriously. It’s an honest-to-God true answer. I worry the most about the people I don’t know yet.

Walt: Back to webOS. If you’re an app developer and you have limited resources, you’re going to develop for iOS and Android. Which is number three?

Léo: In the short term, it’s about putting webOS out there. You’ll see it’s starting to gain some traction. This isn’t about taking Apple head-on. It’s about establishing credibility. Once we are the third alternative, it’s a marathon, not a sprint. Right now the tablet business is basically iPad. In the early ’80s, there was one PC company, Apple. Five years later the market changed completely.

Léo: The first thing is become the clear number three. Give developers a great experience. Get retail exposure. Once we’re in the game, then we go for the roses.

12:00 pm: Walt: I think if a person from Mars landed and looked at iOS and Android, they would seem fairly similar. WebOS is rather different. Is that an advantage for you or a difficulty? It didn’t catch on before.

Léo: It didn’t catch on because Palm didn’t have the resources to create the final quality nor could it get distributed widely enough to make it credible. Multitasking is a great feature. So I believe that it will gain a whole crowd of people who will love it. Developers need real estate. You’re going to try and find a platform that is big enough to create traction. Add printers and PC and TouchPad, we’re talking 100 to 110 million devices a year. We can create a pretty large ecosystem.

Walt: Time for questions.

IDC analyst asks: You can create a big ecosystem. WebOS off HP, maybe on Dell? What’s the approach?

Léo: Right now we are focused on getting it out in the market to gain the credibility we just talked about. We’re reaching out to others. WebOS will also be adopted by many partners who provide services to small and medium businesses. Traditionally HP has a strong channel into medium companies.

Question from Adam Lashinsky: What percentage of the devices that HP ships will have Windows operating system on them versus 99 percent today?

Léo: If you take servers, we ship two types of servers, x86 industry standard servers, many of which run Linux and HP Unix. Even if you look at PCs, you’ll see some with Linux kernels. It’s a hard prediction to make. I don’t believe that Windows will fade into irrelevance.

Walt: You just said 100 percent of PCs are Windows, but you don’t want it to fade into irrelevance. That’s a big difference.

Léo: It may be 80 percent, it may be 70. I can’t make that prediction.

Question about what HP thinks about the TV space and whether webOS might fit there.

Léo: Technically it would be a great OS for a TV. If you look at some of our PCs, you can see we are trying to see if we could make some things happen with TV.

Question about RIM’s Playbook and launch of the TouchPad.

Walt: Don’t shy away from this.

Léo: The one lesson I have learned from this, and I’m driving my engineers crazy with this, is that we will not release a product that isn’t perfect. (One person applauds.)

12:07 pm: Q: You might license to webOS. That puts you in direct competition with Microsoft?

Léo: I happen to believe that webOS is a uniquely outstanding operating system. It’s not correct to believe that it should only be on HP devices. There are all kinds of other people who want to make whatever kind of hardware they make and would like to connect them to the Internet. We’ll make it available to enterprises and to SMBs. It will run on lots of HP devices.

Q: Would you license it to HTC?

Léo: It is certainly something we would entertain.

Q: Question about cloud services.

Léo: We are in the private cloud space, and we are the world’s largest provider of private cloud infrastructure. We’re going to create platform as a service. We will expand that portfolio and provide it as anyone likes, either as a classic on-premise model or as a service.

12:10 pm: Q: You seem to be headed to the same kind of strategy as IBM. They don’t have the consumer end.

Léo: HP’s financials are pretty solid. Q2 we outperformed expectations on top and bottom line. We generated $7 billion of free cash flow in the first half of the year. We grew the bottom line and margins. Our commercial performance was good. Our BRIC performance was good. A bunch of good things are happening. What’s affecting our market cap is the fact that we need to do a lot of work on services. He just repeated that line about blaming the “previous administration”–meaning former CEO Mark Hurd–about not spending enough on services. Likely to cause some irritation in some corners.

And that’s a wrap.

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